lesson seven

1
lesson seven
credit presentation slides
04/09
2
advantages and disadvantages of credit

• advantages
• Able to buy needed items now
• Dont have to carry cash
• Creates a record of purchases
• More convenient than writing checks
• Consolidates bills into one payment
• disadvantages
• Interest (higher cost of items)
• May require additional fees
• Financial difficulties may arise if one loses
  track of how much has been spenteach month
• Increased impulse buying may occur

teens lesson 7 - slide 7-A
3
the three Cs

• characterwill you repay the debt?
• From your credit history, does it look like you
  possess the honesty and reliability to pay credit
  debts?
• Have you used credit before?
• Do you pay your bills on time?
• Do you have a good credit report?
• Can you provide character references?
• How long have you lived at your present
  address?
• How long have you been at your present job?
• capitalwhat if you dont repay the debt?
• Do you have any valuable assets such as real
  estate, savings, or investments that could be
  used to repay credit debts if income is
  unavailable?
• What property do you own that can secure the
  loan?
• Do you have a savings account?
• Do you have investments to use as collateral?
• capacitycan you repay the debt?
• Have you been working regularly in an occupation
  that is likely to provide enough income to
  support your credit use?
• Do you have a steady job? What is your
  salary?
• How many other loan payments do you have?

teens lesson 7 - slide 7-B
4
your responsibilities

• Borrow only what you can repay.
• Read and understand the credit contract.
• Pay debts promptly.
• Notify creditor if you cannot meet payments.
• Report lost or stolen credit cards promptly.
• Never give your card number over the phone
  unless you initiated the call or are certain of
  the callers identity.

teens lesson 7 - slide 7-C
5
your rights

• truth in lending act (1968)
• Ensures consumers are fully informed about cost
  and conditions of borrowing.
• fair credit reporting act (1970)
• Protects the privacy and accuracy of information
  in a credit check.
• equal opportunity act (1974)
• Prohibits discrimination in giving credit on the
  basis of sex, race, color, religion, national
  origin, marital status, age, or receipt of public
  assistance.
• fair credit billing act (1974)
• Sets up a procedure for the quick correction of
  mistakes that appear on consumer credit accounts.
• fair debt collection practices act (1977)
• Prevents abuse by professional debt collectors,
  and applies to anyone employed to collect debts
  owed to others does not apply to banks or other
  businesses collecting their own accounts.

teens lesson 7 - slide 7-D
6
building a credit history

• Establish a steady work record.
• Pay all bills promptly.
• Open a checking account and dont bounce
  checks.
• Open a savings account and make regular
  deposits.
• Apply for a local store credit card and make
  regular monthly payments.
• Apply for a small loan using your savings
  account as collateral.
• Get a co-signer on a loan and pay back the
  loan as agreed.

teens lesson 7 - slide 7-E
7
reading a credit report
teens lesson 7 - slide 7-F
8
manner of payment codes

• status type of account code
• O Open (entire balance due each month)
• R Revolving (payment amount variable)
• I Installment (fixed number of payments)

status timeliness of payment 0 Approved not
used too new to rate 1 Paid as agreed 2 30 days
past due 3 60 days past due 4 90 days past
due 5 Pays or paid 120 days past the due date
or collection account 6 Making regular
payments under wage earner plan or similar
arrangement 7 Repossession 8 Charged off to bad
debt
teens lesson 7 - slide 7-G
9
types and sources of credit

• single-payment credit
• Items and services are paid for in a single
  payment, within a given time period, after the
  purchase. Interest is usually not charged.
• Utility companies, medical services
• Some retail businesses
• installment credit
• Merchandise and services are paid for in two or
  more regularly scheduled payments of a set
  amount. Interest is included.
• Some retail businesses, such as car and
  appliance dealers
• Money may also be loaned for a special purpose,
  with the consumer agreeing to repay the debt in
  two or more regularly scheduled payments.
• Commercial banks
• Consumer finance companies
• Savings and loans
• Credit unions
• revolving credit
• Many items can be bought using this plan as long
  as the total amount does not go over the credit
  users assigned dollar limit. Repayment is made
  at regular time intervals for any amount at or
  above the minimum required amount. Interest is
  charged on the remaining balance.
• Retail stores
• Financial institutions that issue credit cards

teens lesson 7 - slide 7-H
10
how much can you afford? (the 20-10 rule)

• never borrow more than 20 of your yearly net
  income
• If you earn 400 a month after taxes, then your
  net income in one year is
• 12 x 400 4,800
• Calculate 20 of your annual net income to find
  your safe debt load.
• 4,800 x 20 960
• So, you should never have more than 960 of debt
  outstanding.
• Note Housing debt (i.e., mortgage payments)
  should not be counted as part of the 20, but
  other debt should be included, such as car loans,
  student loans and credit cards.
• monthly payments shouldnt exceed 10 of your
  monthly net income
• If your take-home pay is 400 a month
• 400 x 10 40
• Your total monthly debt payments shouldnt total
  more than 40 per month.
• Note Housing payments (i.e., mortgage payments)
  should not be counted as part of the 10, but
  other debt should be included, such as car loans,
  student loans and credit cards.

teens lesson 7 - slide 7-I